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Tesla (TSLA) Shares Crash on Analyst Downgrade, Competitors Gain

Written by: Keris Alison Lahiff10/02/13 - 6:09 PM EDT

Tickers in this article:
F GM HMC TM TSLA

NEW YORK (TheStreet) -- Tesla shares took a dive on Wednesday, closing 6.2% lower at $180.95. The automaker was downgraded to neutral by wealth management company Robert Baird, which set a price target of $187. In the year to date, Tesla shares have gained 434.3%, prompting concerns of a bubble.

TheStreet Ratings team rates Tesla as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

"We rate Tesla (TSLA) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. Among the areas we feel are negative, one of the most important has been poor profit margins." Highlights from the analysis by TheStreet Ratings Team goes as follows:

The gross profit margin for Tesla is currently lower than what is desirable, coming in at 30.28%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -7.52% is significantly below that of the industry average.

The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Automobiles industry and the overall market, Tesla's return on equity significantly trails that of both the industry average and the S&P 500.

Tesla reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, Tesla reported poor results of -$3.70 vs. -$2.52 in the prior year. This year, the market expects an improvement in earnings (59 cents vs. -$3.70).

The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Automobiles industry. The net income increased by 71.1% when compared to the same quarter one year prior, rising from -$105.6 million to -$30.5 million.

This stock has increased by 584.96% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the future course of this stock, we feel that the risks involved in investing in TSLA do not compensate for any future upside potential, despite the fact that it has seen nice gains over the past 12 months.